What are Section 338 tariffs?

• Section 338 of the Tariff Act of 1930 (19 U.S.C. § 1338) authorizes the president to indefinitely impose duties of up to 50% on imports from a country that discriminates against U.S. commerce.
• On July 20, 2026, President Trump invoked Section 338 to impose a 50% tariff on Canadian alcohol, dairy, and motor vehicles.
• The United States-Mexico-Canada Agreement (USMCA), which provides duty-free status for many goods flowing between Canada, Mexico, and the U.S., does not protect alcohol, dairy, motor vehicles, or other affected products from the Section 338 tariffs.

Section 338 of the Tariff Act of 1930 (19 U.S.C. § 1338) pertains to “discrimination by foreign countries.” It authorizes the president of the United States to impose new or additional duties on any country whenever he finds “as a fact” that such country directly or indirectly either:

1. Imposes “any unreasonable charge, exaction, regulation, or limitation which is not equally enforced upon the like articles of every foreign country,” or
2. Discriminates against U.S. commerce by placing “the commerce of the United States at a disadvantage compared with the commerce of any foreign country.”

Section 338 tariffs may not exceed 50% and shall take effect 30 days after the date of the proclamation.

The president has the authority to impose Section 338 tariffs on a whole country or on subdivisions of a country. The law also allows the president to entirely exclude certain articles from importation.

Unlike the tariffs that Trump previously implemented under the International Economic Emergency Powers Act (IEEPA) or Section 122, Section 338 tariffs have no fixed expiration or renewal date. They can last indefinitely.

A 50% Section 338 tariff will apply to alcoholic beverages, dairy products, motor vehicles, and a variety of other products imported from Canada starting August 19, 2026, unless the two countries can negotiate their way to a different deal before then.

Importantly, the Section 338 tariff will apply to affected goods that would otherwise qualify for duty-free status under USMCA.

The presidential proclamations provide the following justifications.

“Canada unreasonably burdens and disadvantages U.S. alcoholic beverages but not alcoholic beverages of other countries.” The proclamation on alcoholic beverages explains that, starting in March 2025, “all Canadian provinces and territories halted the purchase, distribution, or retailing of U.S. alcoholic beverages.”

It’s true that Canadian provinces drastically limited or halted the purchase, distribution, or retailing of alcoholic beverages from the United States in early 2025. What the proclamation leaves out is that Canadian provinces took these steps only after Trump imposed new U.S. duties on many Canadian imports.

The alcoholic beverages subject to the Section 338 tariff are listed in Annex 1.

Canada maintains a tariff-rate quota (TRQ) on cheeses of all types under both the United States-Mexico-Canada Agreement (USMCA) and the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). According to the proclamation on dairy, Canada’s dairy TRQ eligibility criteria for the USMCA and the CETA disfavor the commerce of the U.S.

Dairy farmers are said to be the most powerful political lobby in Canada. Only limited amounts of foreign dairy enter Canada duty free or subject to low tariff rates; tariff rates for many U.S. dairy products range from 200% to nearly 300%.

The proclamation on motor vehicles states that “Canada imposed a tariff system on only U.S. motor vehicles and treats the commerce of foreign countries more favorably than commerce of the United States with respect to motor vehicles.”

Canada has levied a 25% tariff on imports of U.S. motor vehicles that don’t qualify for duty-free treatment under USMCA since April 9, 2025. For U.S. motor vehicles that do qualify for USMCA, Canada set a 25% tariff on the value of all goods used in the production of the vehicle that don’t originate in Canada or Mexico (up to 85% of the total value of the vehicle). This was in response to new U.S. tariffs on Canadian automobiles and auto parts. Canada doesn’t impose this tariff scheme on motor vehicles imported from other countries.

Additionally, according to the White House proclamation, Canada maintains a TRQ on motor vehicles that qualify for duty-free status under USMCA, “to induce companies to invest in production in Canada.” Likewise, Trump has urged companies to relocate to the U.S. to avoid tariffs.

The Section 338 tariffs also apply to many products that are not alcoholic beverages, dairy, or motor vehicles. These include:

• Certain textile products
• Cosmetics
• Electronics such as computer monitors and smartphones
• Field-hockey and ice-hockey equipment
• Furniture
• Golf equipment
• Hats
• Lighting fixtures
• Select paper products, including paper bags and toilet paper
• Various wood products

See this White House Fact Sheet, Annex I, and Annex II for more details. Most of the affected products are listed only by Harmonized Tariff Schedule of the United States (HTSUS) codes, also called tariff codes.

Section 338 tariffs will not apply to several product categories, including:

• Critical minerals
• Energy products and potash
• Fish
• Goods subject to tariffs under Section 232 (e.g., aluminum, automobiles, copper, pharmaceuticals, and semiconductors)
• Certain civil aircraft and parts per the WTO Agreement on Trade in Civil Aircraft (unmanned aircraft, aka drones, are not excluded)

While the Section 338 tariffs won’t stack on products subject to Section 232 tariffs, they can stack on top of other duties, including the 10% Section 301 tariff imposed on Canada on July 24, 2026.

The new Section 338 tariffs apply to a wide variety of Canadian products, including many that are otherwise eligible for duty-free status under USMCA, and they stack on top of other tariffs (with the exception of Section 232 tariffs). Covered products are identified by the HTSUS codes in annexes in the proclamations listed above.

Companies weren’t given much time to determine whether the Section 338 tariffs affect them. The new duties were announced on July 20, 2026, and they took effect on August 19, 2026.

Adding to the compliance complexity, on September 8, 2026, President Trump issued five proclamations that amend the Section 338 tariffs effective September 15, 2026, and ban the import of certain products of Canada effective September 29, 2026. Read our blog on the US-Canada trade war and tariffs for more details.

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